How to take pension benefits is one of the most important decisions defined contribution pension savers make.
Since pension freedoms were introduced, they have more flexibility about the timing and the amount of money to take. But these are difficult decisions, and government and regulators are concerned people are rushing in without fully considering or understanding their options.
To help more people make better decisions, the Financial Conduct Authority and Department for Work and Pensions are both introducing new rules requiring providers and trustees of DC schemes to nudge pension savers to book an appointment with Pension Wise.
This article discusses what these new rules look like.
The background
When pension freedoms were introduced in 2015, concerns were raised about how non-advised pension savers would make decisions on how and when to take pension benefits. Commentators were concerned people would raid their pensions, spend the money and end up in later life with no pension income.
One government response was to set up Pension Wise, offering guidance for people making these decisions. In the intervening years, providers and scheme trustees have followed new rules and increasingly promoted Pension Wise to members through communications such as wake-up packs.
The Financial Guidance and Claims Act 2018, as well as creating a single financial guidance body – the Money and Pensions Service – passed legislation that pension providers and trustees must refer members and survivors to guidance before they take benefits and must make sure the member or survivor has either received this guidance or opted out of receiving such guidance.
The details were to be set in regulations. At the beginning of December 2021, the FCA issued its Policy Statement including final rule changes, and at the beginning of 2022, the DWP also issued its final rules.
Both sets of rules come into force from June 1 2022.
What are the FCA rules?
The aim of the new rules is to nudge customers towards guidance before they take benefits. Providers are required to deliver the nudge to customers contacting the provider to access their benefits, just before they ask those customers questions to identify whether risk factors are present. The next step is for providers to give the client the appropriate retirement risk warnings.
Source: FCA PS 21/21
Providers will have to explain to the customer the nature and purpose of guidance; that it can help the customer make an informed decision about what to do with their pension savings, including the different options available. The provider has to say that an independent pension specialist will deliver the guidance and that customers can access the guidance for free.
Providers must then offer to book a Pension Wise appointment, and where the customer accepts that offer they must book the appointment or provide the customer with sufficient information to book their own appointment. They can do this easily by passing the customer the web address of the Pension Wise appointment booking page or a telephone number.
